Tweeter Home Entertainment Group Inc. (TWTR) filed for Chapter 11 bankruptcy today. The mid-level AV and home theater retailer has been feeling pressure from big-box retailers in the HDTV market such as Costco and Best Buy. Higher up the food chain, Best Buy’s standalone and built-in Magnolia stores also eroded Tweeter’s marketshare.

In published reports, Tweeter’s CEO said they would look to sell off their assets which are reportedly worth $259 million. Their debts are listed at $190 million dollars.

Tweeter’s failure to compete is a serious statement as to the consolidation movement in the home theater and audio-video business. AV manufacturers, like many of today’s biggest U.S. companies, have recently been selling to private equity firms or are being bought out by bigger companies with an appetite to grow in this hot market. While AV manufacturers are getting bigger and more consolidated, independent, regional audio and home theater stores have been closing at an alarming rate. The audiophile business has moved to online retailers as well as being refocused toward the sale of used equipment. Custom installers also have taken marketshare away from more traditional retailers like Tweeter, as they have better ability to work with the construction and design communities.

Tweeter’s CEO is right when he said, “people don’t want to be left with Best Buy and Wal-Mart as their choice to buy electronics.” The fact is the CEDIA-type install community and Internet retailers also strongly factor into the options consumers have when buying their electronics in today’s marketplace. Without question, there is room for a more traditional retail chain such as Tweeter, but major changes are needed to be more competitive. The day of selling gear by the box needs to be left to the stores like Wal-Mart and Costco, who can succeed working on ultra-slim profit margins. In the world of traditional audio-video and home theater retail, the overhead, education and stock is simply too expensive to make it under the big-box business model. Going forward, anyone who would buy a Tweeter chain would need to look at selling fewer boxes – even easy to sell ones like flat, cheap HDTVs – and more toward the integration of audio-video, PCs and other electronics to today’s homes. This must also be paired with the lucrative labor that goes along with making those systems actually work. With that level of refocus both profit margins and relevancy to the consumer increase.

People all over the country are looking at “green” alternatives to their fuel consumption at home. Some of these options, such as solar, new windows, efficient HVAC systems and recycled insulation, cost well north of $20,000. Imagine if consumers could go into a Tweeter to see how their entire home could be automated, integrated and generally tweaked out to represent the cutting edge of home theater and convergence? They would find money to spend in ways that are far more significant than the dropping prices (and margins) at the big-box clubs and retailers.